Recent events in Nigeria have heightened the impression in legal and business circles that Nigerian courts adopt a protectionist attitude towards state owned entities in matters involving the enforcement of arbitral awards against them.
The recent experience of a number of international oil companies (IOCs) which were involved in a multi-billion dollar arbitration against the Nigerian state oil corporation, offers a classic case in point. In separate applications filed by the state oil corporation, the Nigerian National Petroleum Corporation (NNPC), and the State Revenue Authority (a non party to the production sharing contract from which the dispute arose), the Nigerian courts set aside the arbitral award in respect of one of the proceedings which had been concluded, and declared the arbitration proceedings and agreement unconstitutional in the other. The parties involved in related proceedings before Nigerian courts are still awaiting the outcome of similar applications that seek to end the arbitral proceedings.
Concern is rising among business leaders that the blocking of commercial arbitration proceedings by the State is becoming widespread.
This article examines the challenges that are associated with the enforcement of awards against State entities and then draws attention to the emerging trends and possible counter-measures available to forestall helpless situations where awards against State entities in Nigeria are set aside by the local courts.
Procedure for enforcement of arbitral awards in Nigeria
An arbitral award is statutorily recognised as binding on parties to the arbitration immediately after the award is made, such that if the party against whom the award is made complies with the
award, then no further steps need be taken. In practice however, it is rare for the unsuccessful party to arbitration to comply with an arbitral award made against it. Hence recourse is often had to the enforcement procedure under the Arbitration and Conciliation Act (ACA).
To enforce an award under the ACA, the successful party makes an application to the appropriate court for leave to enforce the award attaching the authenticated original award and the original arbitration agreement, or a certified copy of either. Where the court grants leave to the applicant, the award then becomes enforceable in the same manner as a judgment or order of the relevant court.
Impediments to the enforcement of arbitral awards against State entities
The perception that State entities in Nigeria generally enjoy some tacit protection in Nigerian courts may not be without merit. One way in which such protection may manifest itself is through certain peculiar statutory provisions for protections applicable to State entities in Nigeria which a court is bound to consider when deciding whether to allow the enforcement of an arbitral award.
The local courts can also turn to nebulous public policy considerations as a basis for disallowing enforcement. These and other common factors in this area are considered below.
State entities in Nigeria are typically creations of statute. In some instances, the enabling statutes make provisions that limit the exposure of these entities to enforcement proceedings arising from adverse judgments or arbitral awards. Two examples in law are presented below.
Section 14, Nigerian National Petroleum Corporation Act
Section 14 of the Nigerian National Petroleum Corporation Act precludes execution or attachment against any asset or property of the NNPC. Equivalent provisions exist in the various enactments that create most State entities in Nigeria. These provisions stipulate that any monetary sum awarded against the State entity concerned would be paid ‘from the general reserve fund’ of that entity. Within the context of enforcement of arbitral awards, these provisions would for example prevent the successful counter-party in arbitration involving the NNPC from proceeding against the NNPC’s assets even where a Nigerian court has granted such counter-party leave to enforce the award.
Section 14 may not cause a huge problem where the award is modest as the funds available to the NNPC from ‘the general reserve fund’, may well take care of the awarded sum. However, the case would be different in a situation where the award exposes the Corporation to heavy financial burden, which was the case with the arbitrations mentioned above. A Nigerian court could then consider the implications of statutory provisions tailored towards the same effect as section 14 in deciding whether or not to enforce an award against a State entity.
Section 84 of the Sheriffs and Civil Processes Act and Order V Rule 5 of the Judgment Enforcement Rules
Section 84 of the Sheriffs and Civil Processes Act (SCPA) which applies throughout Nigeria, provides that no order for payment may be made attaching monies in the custody or control of a public officer without obtaining the consent of the appropriate officer, who is the Attorney General of the Federation or the Attorney General of the respective component states of Nigeria. The Judgment Enforcement Rules made under the SCPA further extend the restriction beyond monetary attachment to also cover the attachment of property in the custody of a public officer. Given that ‘public service’ is defined by the Nigerian Constitution to include statutory corporations, this requirement for the Attorney General’s consent applies to funds and property of these entities which are in the custody or control of their officers.
As oppressive as the provision of section 84 may appear, its stipulation has been endorsed judicially by the Nigerian Court of Appeal in a number of cases. The obvious difficulty with this requirement is that the relevant Attorney General could decline consent to enforce a judgment and by logical inference, a monetary award against the affected State entity by way of garnishment. The Court’s response to this potential pitfall is that the party affected by such refusal of consent has the recourse of obtaining an order of Mandamus compelling the relevant Attorney General to give the consent.
Given the typically slow pace of court proceedings in Nigeria, the potential negative impact of these provisions on the enforcement of awards against State entities cannot be overemphasised; and reliance on seeking compelling orders against an Attorney General would in practice amount to cold comfort.
Public policy and political considerations
State entities also routinely put forward the imprecise defence of public policy in resisting the enforcement of unfavourable awards against them. Indeed, it is expressly provided under Nigerian law that an international arbitration award may be set aside where the recognition or enforcement of the award is against the public policy of Nigeria. Given the fluidity of the concept of the public policy of Nigeria or any other country at any given point in time, this creates significant uncertainty
in how a Nigerian court would construe a particular award against a State entity especially in cases
where the value of the award is considerably huge.
In the particular arbitration proceedings referred to in our introduction, the Nigerian court upheld the NNPC’s public policy challenge against the award. In a related action to terminate the arbitration agreement and proceedings, a similar objection was also put forward by the State Revenue Authority, which was neither party to the underlying contractual dispute nor the governing arbitration agreement. Curiously, the Revenue’s objection was nevertheless upheld by the Nigerian court.
In view of the recurring public policy arguments, it is perhaps necessary to point out that the Nigerian Supreme Court had highlighted the danger of reaching decisions on the basis of public policy in the Nordwind case, in the following words:
It is dangerous for a court to base its decision mainly on public policy, which indeed would be another means of avoiding the rules, law and procedure which govern a matter. Public policy is
equated with public good. To ask a court to decide only as a result of public policy or public good goes beyond the measure of liberalism in the application of the law or even viewing a matter from the socio-economic context of law. Who is to determine what constitutes public policy? To rely on public policy or public good simpliciter is to give room for uncertainty in the law. It is a way ‘to beg the question.’
Unfortunately, the above dictum of the Supreme Court appears not to have been taken into account by the courts in their application of the provision of the ACA that permits the setting aside of
arbitral award on grounds of public policy; and the point has to be appreciated that what the court would regard as public policy in any given case may in reality represent a deference to the need to avert far-reaching political implications that the enforcement of a substantial award against a State entity may foist on the machinery of government.
For the foregoing reason, public policy consideration is widely regarded as a recurring formidable rock face that must be scaled in a Nigerian court whenever an attempt is made to enforce an arbitral award against a State entity. It would appear that the rock face is usually more difficult to scale where the arbitral sum is substantial.
Another major challenge in the enforcement of arbitral awards against State entities in Nigeria is the ability of any of the parties to employ delaying tactics in the enforcement proceedings, usually with no effort on the part of the relevant court to discourage or disallow such antics. Every application to enforce an arbitral award, with or without a parallel application to set aside the award, is potentially open to appeal from the court of first instance through the Court of Appeal all the way to the Supreme Court, many times in relation to interlocutory matters.
Apart from the delaying tactics of parties, the enforcement proceedings are also vulnerable to potential delay attributable to the local courts and judges and court rules themselves.
An extremely vivid example of how the sort of delay referred to above plays out in practice was on display in the multi-jurisdictional case of IPCO v NNPC. In the judgment of Mr Justice Tomilson, in the English proceedings, the court recounted how the NNPC applied to the Nigerian Federal High Court (FHC) to set aside the arbitral award IPCO obtained against it. The NNPC then amended its application again and again, and also applied for an order of the court restraining IPCO from enforcing the award. Subsequently, in response to IPCO’s application to the court for an accelerated hearing, the FHC ordered parties to file written submissions on IPCO’s preliminary objection to NNPC’s application to set aside the award. Parties complied, argued the application and the case was adjourned for ruling.
The events that followed ultimately ensured that the ruling would not be delivered. The NNPC changed its counsel, and the new counsel brought an application seeking an order for re- assignment of the case to another judge for hearing, and suspending the delivery of the reserved ruling. After a couple of adjournments, the case was re-assigned. When the matter eventually came up before the new judge, the NNPC requested that IPCO’s preliminary objection be heard de novo (re-heard). The request was granted by the new judge who also held that he could not decide whether the previous judge was competent to handle [the] case or not. IPCO eventually appealed the decision of the court, after surmounting several procedural rigours.
In summing up the sequence of events at the FHC, the English court reached the following irresistible conclusion:
In the light of all this it is apparent that even a decision at first instance on the Preliminary Objection may now be very many years away. The potential delay involved in any of the possible outcomes of the appeal is five years together with however long it takes for the matter first to be resolved in the Court of Appeal. On a best case analysis at the conclusion of that period either Okeke J would deliver her ruling, assuming she is still available to do so, or Auta J or another judge would proceed to re-hear the Preliminary Objection de novo. However if the decision of the Court of Appeal is that Auta J should hear and determine the merits of the transfer application, the timescale for achieving resolution at first instance of the Preliminary Objection might be more than twice five years, since Auta J’s decision on the merits of the transfer application, when reached, would itself be
susceptible to two further appeals.
It suffices to state that the judgment of the English court in the IPCO v NNPC case was widely commended as a pragmatic approach to follow in view of the clearly ‘dismaying’ delay in determining NNPC’s application to set aside the arbitral award.
Emerging trends and counter-measures in enforcing awards against State entities
The daunting challenges associated with enforcing arbitral awards against State entities in Nigerian courts have impelled arbitration practitioners to explore practical and innovative means of reaping the fruits of favourable awards against State entities whilst reducing the risk of such
awards being set aside by the courts.
The successful IPCO v NNPC enforcement proceedings, which took place in London whilst there was a pending application in Nigeria to set aside the arbitral award, was a watershed in enforcement proceedings against Nigerian State entities. In the judgment of Mr Justice Tomilson, the English court was pragmatic enough to grant partial enforcement of the award with respect to undisputable sums due to IPCO, having taken into account the inordinate delay in determining NNPC’s application to set aside the arbitral award in Nigeria, which the English court rightly considered to be ‘dismaying’.
The pragmatism of the English court’s decision in the IPCO case has undoubtedly caught the admiration of Nigerian practitioners. It is therefore foreseeable that parties who obtain favourable awards against State entities in Nigeria may be inclined to explore enforcement proceedings outside Nigeria since such a situation is permitted by the New York Convention on the recognition and enforcement of arbitral awards to which Nigeria and most countries are signatories.
Even where an application is made in Nigeria to set aside an award, a chance of enforcing the award may still exist in some foreign jurisdictions notwithstanding the pending application to set aside. For instance, it appears to be a consensus among leading practitioners in England that English courts retain the discretion to either enforce or refuse to enforce an arbitral award in respect of which proceedings aimed at setting it aside are still pending or have even been granted in a foreign jurisdiction.
The exercise of this discretion would take into considerations factors such as whether the award is manifestly valid or manifestly invalid, among others.
However, a Nigerian State party could raise the defence of sovereign immunity in such enforcement proceedings in a foreign jurisdiction. For instance, in the IPCO case, NNPC raised the issue of sovereign immunity (albeit unsuccessfully) in a bid to resist enforcement of an award before the English court which arose out of a contract entered into by NNPC for construction services governed by Nigerian law. Fortunately, international best practice as obtainable in many jurisdictions follows the restrictive immunity approach, to the effect that where State entities enter into commercial transactions, they must be taken to have waived their sovereign immunities with respect to enforcement proceedings arising out of such contracts.
At any rate, commencing enforcement proceedings in a relevant foreign jurisdiction would at least ensure that if the application to set aside is discountenanced in Nigeria, the successful party in the arbitration may proceed to enjoy the benefits of the arbitral award without being confronted with the restrictions imposed by statutory provisions such as sections 84 and 14 of the SCPA and NNPC Act. Where this approach is adopted, it would then appear prudent to structure arbitral awards into distinct parts of claim, such that the non-contentious parts of the award may be severed and enforced with minimal difficulty.
With respect to arbitrations arising out of foreign investments in Nigeria, there appears to be more procedural benefit in exploring institutional arbitration at the International Centre for Settlement of Investment Disputes (ICSID). The ICSID Act significantly removes the delay and difficulties that parties would ordinarily encounter in enforcing arbitral awards under the ACA. This is because the ICSID Act provides that where a copy of an award made by the ICSID is filed at the Supreme Court of Nigeria, such an award will have effect as if it were an award contained in a final judgment of the Supreme Court and shall be enforced accordingly.
Apart from the fact that institutional arbitrations stand a better chance of being enforced at the Supreme Court given its pedigree as the apex court, it also guarantees that the enforcement proceedings will not be unduly delayed with further appeals in the event that an unsuccessful challenge is made against the award.
In sum, arbitration involving State entities in Nigeria will necessarily continue to increase with the expansion of international commerce in Nigeria. Accordingly, those impediments to enforcing arbitral awards against State entities in Nigeria will continue to recur until a time when the rules and procedure relating to arbitration in Nigeria are streamlined to conform to international best practices. Within the existing framework however, parties to arbitrations involving State entities should take cognizance of the peculiar problems of enforcement in Nigeria and take practical steps to avert or minimise the frustrating effects of these impediments.